Lewis v. Comm'r of Internal Revenue, Docket No. 29067-81
| Decision Date | 19 May 1988 |
| Docket Number | Docket No. 29067-81 |
| Parties | EDWARD A. LEWIS AND DOROTHY LEWIS, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Shortly before trial set for January 1987, a decision was entered, pursuant to stipulation, determining petitioners' tax liability for 1977. Petitioners then moved to vacate the decision, claiming entitlement to a net operating loss carryback from 1978, and the decision was vacated in March 1987. The case was thereafter set for trial in December 1987. The week before trial, petitioners moved for a continuance, which was denied. Respondent moved for entry of decision in accordance with the prior stipulation of the parties. HELD, petitioners' claim for net operating loss carryback was not raised properly or timely. Respondent's motion to enter decision granted. Bruce I. Hochman, Martin N. Gelfand, and Dennis L. Perez, for the petitioners.
Ross W. Paulson, for the respondent.
In a statutory notice sent September 15, 1981 respondent determined a deficiency of $140,219.56 in petitioners' Federal income taxes for 1977 and an addition to tax of $7,010.98 under section 6653(a).1 Respondent has moved for entry of a decision that there is an agreed deficiency of $82,762.84, and no addition to tax, due from petitioners. Petitioners oppose that motion and request that they be allowed additional time to raise and litigate a claimed net operating loss carryback from 1978 as an offset to their liability for 1977.
The petition, filed November 30, 1981, alleged error in disallowing petitioners' distributive share of loss from Custom Tape Selections, a subchapter S corporation, and in determining the addition to tax. In an answer filed January 18, 1982, respondent alleged, as new matter, that petitioners' small business corporation failed to make a valid election under section 1372. In a reply filed February 1, 1982, petitioners denied the affirmative allegations of the answer.
By notice served April 17, 1985, the case was set for trial on September 9, 1985, along with more than 50 related cases, commonly referred to as the ‘Selectune‘ group of cases. When the Selectune cases were called from the calendar on September 9, 1985, the parties reported a proposal for disposition of the cases and ongoing settlement negotiations. The cases were then continued generally.
By notice served August 12, 1986, this case and certain of the related cases were set for trial on January 12, 1987. A stipulation for decision was executed by petitioners on or about October 13, 1986, and by respondent on or about December 29, 1986. The stipulation for decision was submitted to the Court, and a decision was entered January 7, 1987, determining a deficiency of $82,762.84 in petitioners' Federal income taxes for 1977 and no addition to tax.
On February 9, 1987, petitioners filed a Motion to Vacate Decision, alleging in part as follows:
2. Respondent prepared settlement documents in accordance with the settlement agreed to in this case and mailed copies to petitioners and to petitioners' counsel on or about May 8, 1986.
3. On or about October 9, 1986, petitioners' counsel sent a duplicate set of settlement documents to petitioners, requesting that they sign and return them to petitioners' counsel's office.
4. On or about December 3, 1986, petitioners' counsel was made aware, through petitioners' C.P.A., of petitioners' disagreement with respondent's settlement computations due to a net operating loss carryback from 1978 which issue had not been previously raised.
5. On or about December 20, 1986, petitioners' counsel was made aware, through petitioners' C.P.A., that respondent had received settlement documents (directly from the petitioner) with respect to this case signed by both petitioners, including Decision documents. Petitioners' counsel was further advised by petitioners and their C.P.A. that respondent had agreed to withhold filing the Decision document with the Court until petitioners determined whether they would raise the net operating loss issue in this case.
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9. Petitioners sustained a net operating loss in 1978 which resulted in a substantial net operating loss carryover.
10. Petitioners carried the entire 1978 net operating loss carryover forward but failed to make an irrevocable election to relinquish the entire carryback as required by I.R.C. sec. 172(b)(3)(E).
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13. Respondent's counsel has no objection to this motion.
By order dated March 4, 1987, petitioners' motion was granted.
By notice served July 14, 1987, the case was set for trial on December 14, 1987. A Standing Pre-Trial Order served with the notice of trial ordered, among other things:
Continuances, even on joint motion, will be granted only in exceptional circumstances. (See Rule 134, Tax Court Rules of Practice and Procedure.) It is further
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ORDERED that unless a basis of settlement has been reached, the parties shall submit a Joint Case Status Report directly to the undersigned forty-five (45) days before the call of the calendar. Where a basis of settlement has been reached, stipulated decisions shall be submitted to the Court prior to calendar call. Continuances to permit filing of settlement documents will be granted only where it is clear that settlement has been approved by both parties, and the parties shall be prepared to state for the record the basis of settlement and the reasons for delay in filing documents. Jurisdiction will be retained in such cases. It is further
ORDERED that unless a basis of settlement has been reached, each party shall prepare a Trial Memorandum and submit it directly to the undersigned and to the opposing party no later than fifteen (15) days before the first day of the trial calendar. It is further
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ORDERED: * * * If any unexcused failure to comply with this Order adversely affects the timing or conduct of the trial, the Court may impose appropriate sanctions, including dismissal, to prevent prejudice to the other party or imposition on the Court.
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The parties did not comply with the Standing Pre-Trial Order. Less than a week prior to the date set for trial, petitioners' counsel initiated a conference call with the Court and advised the Court that petitioners intended to file a motion to amend the petition to claim the net operating loss carryback. On December 11, 1987, petitioners filed with the Court a motion for continuance, alleging, among other things:
7. During the period from December 29, 1986 to January 9, 1987, the parties engaged in discussions relating to Petitioners' claim of the net operating loss carryback from 1978. In these discussions, Petitioners' counsel informed Respondents counsel of Petitioners' intention to file a motion to vacate the decision previously filed by Respondent. The basis of this motion to vacate was to allow Petitioners to raise the net operating loss issue and give the parties sufficient time to discuss and resolve all issues raised by the carryback computation.
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9. On or around January 12, 1987, Petitioners provided Respondent's counsel copies of Petitioners' 1975 through 1985 Federal income tax returns and informed Respondent that Petitioners' accountants were in the process of computing the net operating loss carryback to 1977. On this date, the parties also agreed to further discuss the issue after Respondent had an opportunity to review the Petitioners' tax returns and after Petitioners' accountants completed the carryback computations.
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11. There were no communications between Petitioners' counsel and Respondent's counsel concerning the instant case during the period from February, 1987 to early October, 1987.
12. On or around October 9, 1987, the parties discussed the net operating loss issue. Respondent's counsel was informed that the net operating loss computations were being prepared by Petitioners' accountants and would be immediately provided to Respondent upon completion. Respondent's counsel did not inform Petitioners' counsel in this discussion that Respondent would object to the carryback of the 1978 net operating loss.
13. On or around November 19, 1987, Petitioners' counsel contacted Respondent's counsel concerning the instant case. At this time, Respondent's counsel informed Petitioners' counsel that Respondent may take the position that the Petitioners are precluded from carrying back the 1978 net operating loss to the 1977 tax year, because the Petitioners had made a ‘DE FACTO ELECTION‘ which was irrevocable.
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17. The Petitioners, having discovered the misunderstanding which has prevented the parties from arriving at a final resolution of this case, now seeks a continuance for purposes of formally raising the 1978 net operating loss carryback issue for resolution by the parties or a decision of this Court.
18. Petitioners received the carryback computations on December 7, 1987 and are now prepared to take steps to raise the loss carryback issue and resolve it through settlement or litigation.
19. Respondent's counsel was notified of this motion on December 8, 1987 and he objects to the granting of it.
20. Petitioners request that this motion be heard at the December 14, 1987 Tax Court calendar call in Pasadena, California.
Petitioners have not, through the time of this opinion, filed a motion to amend the petition.
The case was called for trial on December 14, 1987, at which time respondent filed a Motion for Entry of Decision. The Court denied Petitioners' Motion for Continuance and directed the parties to attempt to resolve their differences, setting the case for recall on December 22, 1987. The parties were unable to reach agreement and, on December 22, 1987, filed a Joint Stipulation of Facts concerning the history of this case. The parties' stipulation included the following paragraphs:
11. In early December, 1986, Petitioners notified Respondent's Appeals Office that Petitioners were looking into whether they could...
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